Question 1

Risk management is the driving force behind the futures options market.

Accepted Answer

A) True 
 B)False

Question 2

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
BioTech Industries has debentures outstanding (par value $1,000) convertible into the company's common stock at $30. The coupon rate is 11 percent payable semiannually, and they mature in 10 years.
-Refer to Exhibit 16.9. Calculate the straight-bond value assuming that bonds of equivalent risk and maturity are yielding 14 percent per year compounded semiannually.

Accepted Answer

A)  $757.37 
B)  $796.83 
C)  $841.07 
D)  $889.82 
E)  $902.65 
A)  $757.37 
B)  $796.83 
C)  $841.07 
D)  $889.82 
E)  $902.65

Question 3

The investment value of a convertible bond is the price that it would be expected to sell as a straight debt instrument.

Accepted Answer

A) True 
 B)False

Question 4

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
GE Corporation has a put option selling for $2.90 and a call option selling for $1.95, both with a strike price of $29.00.
-Refer to Exhibit 16.6. Which strategy is most appropriate for an investor who expects share prices to be volatile but was inclined to be bullish?

Accepted Answer

A)  protective put 
B)  covered call 
C)  long straddle 
D)  short straddle 
E)  long strap 
A)  protective put 
B)  covered call 
C)  long straddle 
D)  short straddle 
E)  long strap

Question 5

Assume that you have just sold a stock for a loss at a price of $75 for tax purposes. You still wish to maintain exposure to the sold stock. Suppose that you sell a put with a strike price of $80 and a price of $7.25. Calculate the effective price paid to repurchase the stock if the price after 35 days is $85.

Accepted Answer

A)  $77.75 
B)  $87.25 
C)  $82.25 
D)  $72.75 
E)  $85.25 
A)  $77.75 
B)  $87.25 
C)  $82.25 
D)  $72.75 
E)  $85.25

Question 6

The most important input the investor must provide in determining option values is the strike price.

Accepted Answer

A) True 
 B)False

Question 7

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for a common stock.
  
-Refer to Exhibit 16.7. Calculate the net value of a covered call position at an expiration stock price of $20.

Accepted Answer

A)  $1.85 
B)  $4.45 
C)  $18.15 
D)  $21.85 
E)  $24.35 
A)  $1.85 
B)  $4.45 
C)  $18.15 
D)  $21.85 
E)  $24.35

Question 8

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for Citigroup
  
-Refer to Exhibit 16.4. Calculate the payoffs of a long strap at a stock price at expiration of $20 and a stock price at expiration of $45.

Accepted Answer

A)  $6.35, $18.85 
B)  $29.65, $42.15 
C)  $21.65, $34.15 
D)  $8, $8 
E)  -$8, -$8 
A)  $6.35, $18.85 
B)  $29.65, $42.15 
C)  $21.65, $34.15 
D)  $8, $8 
E)  -$8, -$8

Question 9

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for a common stock.
  
-Refer to Exhibit 16.7. Calculate the payoff of a short straddle at an expiration stock price of $20.

Accepted Answer

A)  -$4.50 
B)  -$2.00 
C)  $2.00 
D)  $4.50 
E)  $20.50 
A)  -$4.50 
B)  -$2.00 
C)  $2.00 
D)  $4.50 
E)  $20.50

Question 10

Stock options expire on the Sunday following the third Saturday of the designated month.

Accepted Answer

A) True 
 B)False

Question 11

All of the following are normal characteristics of a convertible bond, EXCEPT

Accepted Answer

A)  conversion at the option of the issuer. 
B)  conversion into a fixed number of shares of common stock. 
C)  a conversion price initially above the market price of the common stock. 
D)  an interest rate lower than that on straight debentures. 
E)  subordination. 
A)  conversion at the option of the issuer. 
B)  conversion into a fixed number of shares of common stock. 
C)  a conversion price initially above the market price of the common stock. 
D)  an interest rate lower than that on straight debentures. 
E)  subordination.

Question 12

Risk management strategies involving interest rate agreements can be classified as forward-based or option-based.

Accepted Answer

A) True 
 B)False

Question 13

In a binomial option pricing model, the initial value of the call can be determined by working backward through the tree and solving for each of the remaining intermediate option values.

Accepted Answer

A) True 
 B)False

Question 14

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 16.8. If you establish a long strip using the options with an 85 exercise price, what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

Accepted Answer

A)  $1,668.75 gain 
B)  $1,700.00 gain 
C)  $1,700.00 loss 
D)  $31.25 gain 
E)  $31.25 loss 
A)  $1,668.75 gain 
B)  $1,700.00 gain 
C)  $1,700.00 loss 
D)  $31.25 gain 
E)  $31.25 loss

Question 15

A currency call is like being ____ in the currency futures.

Accepted Answer

A)  out-of-the-money 
B)  in-the-money 
C)  long 
D)  short 
E)  at-the-money 
A)  out-of-the-money 
B)  in-the-money 
C)  long 
D)  short 
E)  at-the-money

Question 16

Options on futures expire at the same time the futures contract expires.

Accepted Answer

A) True 
 B)False

Question 17

An advantage of convertible bonds is

Accepted Answer

A)  investors get the upside potential of a bond. 
B)  investors get the upside potential of a stock. 
C)  issuing firms can get a lower rate of interest on its debt. 
D)  a and b 
E)  b and c 
A)  investors get the upside potential of a bond. 
B)  investors get the upside potential of a stock. 
C)  issuing firms can get a lower rate of interest on its debt. 
D)  a and b 
E)  b and c

Question 18

In index options, the aggregate market takes the place of the individual stock issues being traded, as in stock options.

Accepted Answer

A) True 
 B)False

Question 19

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
GE Corporation has a put option selling for $2.90 and a call option selling for $1.95, both with a strike price of $29.00.
-Refer to Exhibit 16.6. What would the net value of a long straddle position be if the stock price at expiration is $35?

Accepted Answer

A)  -7.15 
B)  -$1.15 
C)  $1.15 
D)  $7.15 
E)  $36.15 
A)  -7.15 
B)  -$1.15 
C)  $1.15 
D)  $7.15 
E)  $36.15

Question 20

Assume that you have just sold a stock for a loss at a price of $75 for tax purposes. You still wish to maintain exposure to the sold stock. Suppose that you sell a put with a strike price of $80 and a price of $7.25. Calculate the effective price paid to repurchase the stock if the price after 35 days is $70.

Accepted Answer

A)  $77.75 
B)  $87.25 
C)  $82.25 
D)  $72.75 
E)  $85.25 
A)  $77.75 
B)  $87.25 
C)  $82.25 
D)  $72.75 
E)  $85.25

Risk management is the driving force behind the futures options market.

The investment value of a convertible bond is the price that it would be expected to sell as a straight debt instrument.

The most important input the investor must provide in determining option values is the strike price.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information on put and call options for a common stock. -Refer to Exhibit 16.7. Calculate the net value of a covered call position at an expiration stock price of $20.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information on put and call options for Citigroup -Refer to Exhibit 16.4. Calculate the payoffs of a long strap at a stock price at expiration of $20 and a stock price at expiration of $45.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information on put and call options for a common stock. -Refer to Exhibit 16.7. Calculate the payoff of a short straddle at an expiration stock price of $20.

Stock options expire on the Sunday following the third Saturday of the designated month.

All of the following are normal characteristics of a convertible bond, EXCEPT

Risk management strategies involving interest rate agreements can be classified as forward-based or option-based.

In a binomial option pricing model, the initial value of the call can be determined by working backward through the tree and solving for each of the remaining intermediate option values.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 16.8. If you establish a long strip using the options with an 85 exercise price, what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A currency call is like being ____ in the currency futures.

Options on futures expire at the same time the futures contract expires.

An advantage of convertible bonds is

In index options, the aggregate market takes the place of the individual stock issues being traded, as in stock options.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) GE Corporation has a put option selling for $2.90 and a call option selling for $1.95, both with a strike price of $29.00. -Refer to Exhibit 16.6. What would the net value of a long straddle position be if the stock price at expiration is $35?

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

Exam 16: Option Contracts

Risk management is the driving force behind the futures options market.

The investment value of a convertible bond is the price that it would be expected to sell as a straight debt instrument.

The most important input the investor must provide in determining option values is the strike price.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information on put and call options for a common stock. -Refer to Exhibit 16.7. Calculate the net value of a covered call position at an expiration stock price of $20.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information on put and call options for Citigroup -Refer to Exhibit 16.4. Calculate the payoffs of a long strap at a stock price at expiration of $20 and a stock price at expiration of $45.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information on put and call options for a common stock. -Refer to Exhibit 16.7. Calculate the payoff of a short straddle at an expiration stock price of $20.

Stock options expire on the Sunday following the third Saturday of the designated month.

All of the following are normal characteristics of a convertible bond, EXCEPT

Risk management strategies involving interest rate agreements can be classified as forward-based or option-based.

In a binomial option pricing model, the initial value of the call can be determined by working backward through the tree and solving for each of the remaining intermediate option values.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 16.8. If you establish a long strip using the options with an 85 exercise price, what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A currency call is like being ____ in the currency futures.

Options on futures expire at the same time the futures contract expires.

An advantage of convertible bonds is

In index options, the aggregate market takes the place of the individual stock issues being traded, as in stock options.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) GE Corporation has a put option selling for $2.90 and a call option selling for $1.95, both with a strike price of $29.00. -Refer to Exhibit 16.6. What would the net value of a long straddle position be if the stock price at expiration is $35?

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters